One question I hear repeatedly as I travel the country discussing healthcare is whether the transition from fee-for-service to value-based care can really be done in a way that lowers cost and improves patient care. The answer is: it can.

While there isn’t a one-size-fits-all solution, successful systems change requires the collaboration and coordination of payers, providers, physicians, regulators, and patient-consumers, taking them outside their comfort zone by flipping the current incentive structure on its head.

It's useful to review why we should change the way we pay for our healthcare in the first place. The current, dominant fee-for-service (FFS) model incentivizes over-provision of services, which contributes nothing to improving health. Physicians are paid for each medical test they run, but they aren't compensated for coordinating patient care among different providers, or spending time on patient education. There isn’t a billing code for that. As a result, care is fragmented and disjointed, leading to inefficient delivery and wasteful duplication of services. A patient feels overwhelmed by the care labyrinth he or she must navigate. One estimate put the overtreatment cost alone at $192 billion in 2011.

As our population of elderly patients and those with chronic conditions increases, we face unsustainable growth in healthcare spending paired with worse health outcomes. Our per capita health expenditures are twice that of the U.K., Australia, and Sweden, yet we report worse health indicators. Simply put, we are not getting what we pay for. And individuals suffer.

Thankfully, we have begun the fundamental shift of paying for health outcomes rather than simply service volume. In 2015, the Administration wisely announced that 30% of Medicare payments would go toward alternative payment models by end of 2016. By 2018, 90% of all Medicare payments will be tied to quality or value – including 50% via alternative payment models. Yes, that is just Medicare spending, but Medicare has long been the giant leading the way. Because of the Center for Medicare & Medicaid Services’ (CMS) influential role as the largest payer for healthcare, other providers throughout the healthcare sector are reconsidering how they offer care. Alternative payment models such as Patient-Centered Medical Homes (PCMHs), bundled payments, and Accountable Care Organizations (ACOs) are springing up across the country to bring more rational order to healthcare delivery and better outcomes for patients.

What will this new payment model look like five years from now? Eventually, some types of care will give way to a fully-capitated, risk-adjusted model, where a lump-sum fee covers the entire care of a patient on a monthly or yearly basis. This might be a format for primary care providers. Specialty care will likely adopt different forms of value-based payments based on the frequency and cost of use. Some single episode, low-cost procedures like immunizations may remain as FFS, while chronic conditions like COPD (Chronic Obstructive Pulmonary Disease) and diabetes might be better suited to capitated payment or even a global risk model such as the one implemented by the Oregon Coordinated Care Organizations.

While this sounds like a major change, we have in fact been using a managed care, capitated model successfully for years with Medicare Advantage. Medicare pays a fixed amount per enrollee each month to private insurers offering Medicare Advantage plans, which in turn offer a federally-set standard of coverage. In addition, a recent survey found that 90% of payers and 81% of providers are already using some form of value-based purchasing. This is not entirely new territory.

To achieve this transition on a more comprehensive scale, seven things must happen:

Providers must budget for an initial revenue loss. Yes, this is a hard pill to swallow, which is why many hospitals and physician practices are just tinkering around the edges of value-based payments. Today more than half of physician revenue (53%) continues to be based on fee-for-service payments, according to a recent PricewaterhouseCooper survey. But if patients truly receive better outcomes as they receive better “value,” we’ll have a healthier population that will use less care. That’s why understanding and engaging patient-consumers becomes vital. A more satisfied patient will remain loyal to value-driven providers.

Make a meaningful front-end investment in health IT, which is fundamental to understanding costs and identifying inefficiencies in the systems. Interoperable electronic health records will be central to better and more efficient care delivery.

Large systems, such as those of large employers or major pension funds, must continue to lead the way. For example, CalPERS, the large retirement program for California state employees, piloted a cost-sharing methodology called reference-based pricing. CalPERS capped what it would pay for hip and knee procedures at $30,000, with any additional cost borne by the patient. As a result, low-price hospitals saw an increase in market share from 48% to 63%, while high-price hospitals saw a decrease in market share from 52% to 37%. Not only did CalPERS save millions in health costs over two years, but the high-priced facilities reduced their prices 25% from 2010 to 2012 because of consumer choices. CalPERS incentivized a change in consumer behavior on a scale that in turn influenced provider behaviors.

Physicians and patients alike must know the trust cost of care. My dear friend and Princeton economics professor Uwe Reinhardt likens “shopping” for healthcare to trying to find a purple sweater in a department store while blindfolded. Consumers and physicians alike must first understand the real costs if they are going to take value into consideration. Right now we have a confusing price structure of five different charges for every unit of service delivered. There is the hospital “chargemaster” rate, the private insurance negotiated rate, the Medicare rate, the Medicaid rate, and the actual cost. Studies have shown doctors order more appropriately with fewer tests when they know the actual price, but all too often they, too, are in the dark when it comes to trust cost.

Doctors should coordinate with other providers to create clinically-integrated networks that include outpatient care. Many of today’s medical services can be performed in lower cost facilities, in the home, or via telehealth, which lowers medical expenses and often improves patient convenience and satisfaction.

Regulators must clearly define standards for success. On April 27th, CMS released its proposed rule for the Quality Payment Program established under the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), known as the permanent “doc fix” legislation. This proposed rule outlines eligibility and performance measures for the new Merit-based Incentive Payment System (MIPS) as well as the physician incentive structure for Alternative Payment Models (APMs). The effectiveness of rules such as this will be key to whether we see a true systems change or half-hearted billing changes labeled as value measures.

How quickly and universally those changes are made by our healthcare sector will determine when we achieve the dual-goals of cost savings and improved outcomes. Different payment systems will solve the cost/quality challenges differently, depending on the costs unique to each medical condition. And each stakeholder has a role to play: providers nationwide must evaluate and meet the demand for value-based services in their own communities; insurers must reward providers in shared savings; and patient-consumers must demand price transparency and the best possible care.

I am a heart and lung transplant surgeon, former U. S. Senate Majority Leader, and chairman of the Executive Council of the health service investment firm Cressey & Company. I founded and serve as chairman of Hope Through Healing Hands, a global health organization whic...